Section 40A(3/3A) I Restrictions on Expenditure (Capital & Revenue)

CA.R.S.KALRA | Last updated: 05 February 2021

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Quick Summary

Section 40A(3) and 40A(3A) of the Income Tax Act outline restrictions on expenditure when payments exceed certain cash limits. If an expenditure of over £10,000 is incurred and paid in cash on a single day, it may be disallowed as a business expense. This also applies to payments made in subsequent years for expenses previously claimed. Special rules apply to payments for goods carriages, with a higher limit of £35,000.

Analysis of Section 40A(3) and 40A(3A) (a) Analysis of sec 40A(3) of the Act. Where payment is made in the year the expenditure is incurred: 100% disallowance of payment if in excess of Rs. 10,000 and not by a/c payee cheque/draft/ECS. [Sec 40A(3)] There are following two conditions for the ap

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FAQ :

Generally, if an expenditure exceeding £10,000 is incurred and paid in cash on a single day, the entire expenditure may be disallowed as a deduction for tax purposes.

Yes, for payments made to transporters for plying, hiring, or leasing goods carriages, the cash limit is increased to £35,000.

If an expense exceeding £10,000 was previously allowed as a deduction and is later paid in cash in a subsequent year, that payment will be treated as business income for the year of payment.

If the aggregate payment to a single person on a single day exceeds £10,000, it can be disallowed. However, if the payment is for multiple bills, and each individual bill is £10,000 or less, the payment may be allowed.

If the payment or aggregate of payments for an asset exceeds £10,000 in a day and is not made via account payee cheque, draft, or ECS, that expenditure is ignored when determining the 'actual cost' for depreciation purposes.